State’s power to tax based on annual turnover | Judgement Matrix

On 4 November, the seven-judge Bench led by CJI Surya Kant, including Justices K.V. Viswanathan, S.V. Bhatti, Joymalya Bagchi, N.V. Anjaria, Arun Palli and V. Mohana disposed of the reference on whether the State has the power to impose tax on annual turnover under Entry 54 of the State List of the Seventh Schedule, holding that the reference has been rendered infructuous. 

The State List contains subject matters where a state legislature can make laws for the state governments to enforce. The issue arose after the Odisha government brought in the Orissa Sales Tax Act, 1947. It imposed an additional tax of 10 percent on dealers with an annual turnover between ₹10 lakh and ₹1 crore. A larger bench was assigned the matter after the Court found conflicting judgements concerning the states’ taxing power.

The seven-judge Bench had reserved judgement in the matter after a single day of arguments on 23 September 2026. Solicitor General Tushar Mehta had argued that the issue had become academic due to subsequent legal developments, both on the judicial and legislative side. One of the precedents under consideration before the seven-judge Bench was set aside by a nine-judge Bench in 2024. Further, the Value Added Tax (VAT) regime was replaced by the Goods and Services Tax (GST) regime in 2017.  

The Supreme Court held that there is no real conflict in law and the question of whether the State can impose surcharge on sale and purchase of goods under Entry 54 II was settled by the 1974 judgement in S. Kodar v State of Kerala. The conflicting judgement in India Cements v State of Tamil Nadu (1990) was later set aside by the Supreme Court in Mineral Area Development Authority (MADA) v Steel Authority of India (2024).

The seven-judge Bench produced two opinions authored by Chief Justice Surya Kant and Justice K.V. Viswanathan.

We provide a snapshot of the key holdings on the issue.